4/22/2009 State Taxes and Economic Turmoil a presentation to the a presentation to the 6 th Annual NMTRI Tax Policy Conference April 30, 2009 Albuquerque by by Jim Eads Jim Eads Executive Director Executive Director Federation of Tax Administrators Federation of Tax Administrators The information presented herein represents the views of the presenter only and are not necessarily those of NMTRI or the Federation of Tax Administrators or its members. Coming Today in this Coming Today in this Presentation Presentation Principles of a Good Tax System Principles of a Good Tax System Economic Turmoil: Opportunity or Armageddon? Economic Turmoil: Opportunity or Armageddon? Economic Stimulus: Are we there yet? Economic Stimulus: Are we there yet? Federal legislation affecting state taxation: Federal legislation affecting state taxation: Good, Bad or Ugly? Good, Bad or Ugly? The Fundamental Problem The Fundamental Problem 1
4/22/2009 Principles of a “Good” Tax System Principles of a “Good” Tax System Taxes should be adequate to provide an appropriate level of those goods Taxes should be adequate to provide an appropriate level of those goods and services best provided by the public sector, such as education, public and services best provided by the public sector, such as education, public safety and transportation. safety and transportation. Taxes should do the least harm to the private economy. Taxes should do the least harm to the private economy. Tax bases should be as broad a possible so that tax rates can be as low Tax bases should be as broad a possible so that tax rates can be as low as possible. as possible. Taxes should not only be fair and equitable towards individuals and Taxes should not only be fair and equitable towards individuals and businesses similarly situated, but also they must be perceived as fair by businesses similarly situated, but also they must be perceived as fair by taxpayers. Individuals with the same income level should bear the same taxpayers. Individuals with the same income level should bear the same or similar tax burden. Businesses engaged in similar commercial activities or similar tax burden. Businesses engaged in similar commercial activities should be subject to the same level of taxation. should be subject to the same level of taxation. Principles of a “Good” Tax System (2) Principles of a “Good” Tax System (2) Taxes should not be costly for government to administer and should be Taxes should not be costly for government to administer and should be easily understood by taxpayers so as to maximize taxpayer easily understood by taxpayers so as to maximize taxpayer understanding and minimize taxpayer compliance costs. understanding and minimize taxpayer compliance costs. Taxes should be evaluated on the basis of the impact of all taxes levied Taxes should be evaluated on the basis of the impact of all taxes levied on taxpayers, not just a single tax or tax rate. on taxpayers, not just a single tax or tax rate. Deviations from sound tax policy in pursuit of economic development, Deviations from sound tax policy in pursuit of economic development, social or other goals should be well social or other goals should be well-reasoned and implemented only reasoned and implemented only when established tax policies are not significantly undermined and the when established tax policies are not significantly undermined and the results of such deviations can subsequently be evaluated. results of such deviations can subsequently be evaluated. 2
4/22/2009 State Revenue Performance by Tax State Revenue Performance by Tax Source: Nelson A. Rockefeller Institute of Government Sales Tax Revenues: Sales Tax Revenues: Some Reports from the States Some Reports from the States down down 8.63% from February 2008 8.63% from February 2008 1.2% below 1.2% below down down 10.3% 10.3% down down about 5% about 5% down about 8 percent down about 8 percent down down 6.9% 6.9% down down in February from the previous February by 11.2% in February from the previous February by 11.2% YTD we're down YTD we're down about 5% about 5% down down 7.9% from February 2008 7.9% from February 2008 down down 18.5% from February 2008 18.5% from February 2008 3
4/22/2009 Economic Turmoil: Opportunity or Economic Turmoil: Opportunity or Armageddon for the States? Armageddon for the States? State Tax Revenues are Declining State Tax Revenues are Declining – Deficits are Prohibited Deficits are Prohibited Corporate Income: UDITPA Revision, Combined Corporate Income: UDITPA Revision, Combined Reporting, Single Sales Factor, Incentives, De-Coupling, Reporting, Single Sales Factor, Incentives, De Coupling, Penalties Penalties Reserves: Draw down Reserves: Draw down Tax Increases: Tobacco, Sin, Fees, “Temporary” fixes, Tax Increases: Tobacco, Sin, Fees, “Temporary” fixes, Amnesty Amnesty Spending Cuts: Layoffs, Furloughs, Salary reductions Spending Cuts: Layoffs, Furloughs, Salary reductions Federal Funds Flowing to States: To take or not to take? Federal Funds Flowing to States: To take or not to take? Tax Provisions Affecting States in the Tax Provisions Affecting States in the Economically Stimulating Legislation Economically Stimulating Legislation 5 year (currently 2 year) NOL carry 5 year (currently 2 year) NOL carry- -back for 2008 losses; limited to back for 2008 losses; limited to companies with annual revenues of less than $15 million; companies companies with annual revenues of less than $15 million; companies that receive TARP bailout money from Treasury are not eligible. that receive TARP bailout money from Treasury are not eligible. Deduction for sales taxes paid on purchase of new motor vehicles; Deduction for sales taxes paid on purchase of new motor vehicles; the deduction taken by non-itemizers will not flow through to most the deduction taken by non itemizers will not flow through to most existing state tax codes; the deduction taken by itemizers will. existing state tax codes; the deduction taken by itemizers will. Businesses that buy equipment and make investments in plants can Businesses that buy equipment and make investments in plants can expense up to $250,000 directly from their tax liabilities. expense up to $250,000 directly from their tax liabilities. The 50 percent bonus depreciation deduction for qualified property is The 50 percent bonus depreciation deduction for qualified property is extended by one year, applying to property placed in service before extended by one year, applying to property placed in service before 2010 and in a few cases 2011. 2010 and in a few cases 2011. 4
4/22/2009 Congress to the States: “We’re from Congress to the States: “We’re from Washington and we’re here to help you.” Washington and we’re here to help you.” Main Street Fairness Act Main Street Fairness Act Business Activity Tax Simplification Act Business Activity Tax Simplification Act Permanent Internet Tax Freedom Act of 2009 Permanent Internet Tax Freedom Act of 2009 Mobile Workforce State Income Tax Fairness Mobile Workforce State Income Tax Fairness and Simplification Act and Simplification Act State State & Local Taxation of Electronic Local Taxation of Electronic Commerce Commerce Cell Tax Fairness Act Cell Tax Fairness Act State Video Tax Fairness Act State Video Tax Fairness Act Hotels, Rental Cars, Energy: all need help from DC Hotels, Rental Cars, Energy: all need help from DC Main Street Fairness Act Main Street Fairness Act th Congress) (S. 37; H.R. 3396, 110 (S. 37; H.R. 3396, 110 th Congress) State State that that simplifies simplifies its sale and use taxes its sale and use taxes may require may require sellers sellers not physically present in the state to not physically present in the state to collect and collect and remit that state’s use tax remit that state’s use tax Congress consents to the Streamlined Sales and Use Congress consents to the Streamlined Sales and Use Tax Agreement Tax Agreement Legislation is independent, Legislation is independent, but but similar to similar to the Streamlined the Streamlined Sales Tax Sales Tax Agreement Agreement Expanded jurisdiction Expanded jurisdiction is provided is provided only to “Member States only to “Member States under the Streamlined Sales and Use Tax Agreement” under the Streamlined Sales and Use Tax Agreement” §4(a)(1) 4(a)(1) 5
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